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Detroit Free Press: GM’s venture capital fund invests millions in high-tech entrepreneurs

http://www.freep.com/article/20110826/BUSINESS0101/108260458/GM-s-venture-capital-fund-invests-millions-in-high-tech-entrepreneurs?odyssey=tab|mostpopular|text|FRONTPAGE

GM Ventures’ Jon Lauckner promises that the venture-capital fund he runs isn’t a “ZIP code investor.” Still, four of the six firms in which General Motors has invested now have ties to the company’s home state of Michigan.

Sakti3, an electric-vehicle battery maker, is based in Ann Arbor and run by a University of Michigan professor. Powermat, which makes wireless charging mats for cell phones, has its sales headquarters in Commerce Township.

And once GM Ventures was on board, plug-in hybrid developer Bright Automotive and solar-energy company Sunlogics both moved some operations to vacant space in Rochester Hills. A fifth company, battery materials firm Envia Systems, may have a Michigan office in the works next year, CEO Atul Kapadia said.

The perks for Michigan are a side benefit of GM Ventures’ main goal: to change the way GM develops and updates its products by giving it early, immediate access to entrepreneurs’ high-tech ideas.

Each connection GM builds with the venture-capital community increases the automaker’s chances of having first dibs on the next groundbreaking technology, just as it boosts Michigan’s network of ideas, education and funding that Lauckner said is integral to create the state’s own version of Silicon Valley.

Less than a dozen people serve on the GM Ventures team that reports to Lauckner, who is the architect of the battery-generator combination in the Chevrolet Volt extended-range electric vehicle.

The team has so far reviewed applications from about 400 companies. Investments will focus on five areas that executives think will drive much of the auto industry’s change in coming years: clean technology; infotainment; materials that are lightweight, green or otherwise “smart”; advanced technologies such as sensors or microprocessors; and alternatives to the traditional automotive business model.

The group received $100 million when it was founded last July, with more funding to come annually if GM Ventures is successful.

So far, Lauckner and his team manage $45 million in investments, including stakes in two ethanol companies dating to 2008, before the venture-capital fund began. Investments currently range from $3.2 million to $7.5 million each, and Lauckner’s group should complete several more by the end of the year, he said.

By using a venture-capital model, GM is able to align itself more with the quick-turnaround style of Silicon Valley investments, rather than longer product development process common in the auto industry, said David Brophy, who directs private-equity studies at the University of Michigan.

“Having the fund opens the door for other funds to come in and co-invest,” said Brophy, such as when leading Silicon Valley venture firm Kleiner Perkins Caufield & Byers partnered with GM’s investment in electric transit bus company Proterra.

GM’s version of venture capital makes its investments less risky than traditional venture bets, Lauckner said. GM does intend for GM Ventures to be self-sustaining someday, receiving proceeds from its investments. But it primarily wants to be a big customer of the start-ups’ technology, which helps ensure the small companies’ success. For instance, GM plans to start putting Powermat wireless chargers in vehicles as soon as next year.

The speed, calculated risk-taking and planning for next-generation technology represented in GM Ventures exemplifies the culture GM’s new executives have sought to create post-bankruptcy. Still, many feel Michigan’s auto-heavy economy needs a culture change as much as GM’s did.

“We had this economy in which a relatively small number of big companies provided huge employment opportunities for many people, many of which were not very high on the skill chain,” said economist Charles Ballard, a Michigan State University professor. “The world changed, and we were not nimble — certainly General Motors was not nimble.”

But GM Ventures’ investments are taking small steps to help change both the state and itself. Bright Automotive and Sunlogics both approached GM Ventures about moving to Michigan, Lauckner said, citing the proximity to auto-technology experts, more than 1.5 million vehicles’ worth of automotive production and a plethora of available industrial and office space.

“We’re not insisting that the companies locate in southeast Michigan,” Lauckner said. “What we try to do … is just say, ‘Look, if … you’re thinking about a location, we can certainly make introductions to the right people within the state.’ “

For Michigan to turn into a hotbed for start-up companies, Lauckner said, the state will have to focus on education and perks for entrepreneurs, along with financing from groups like GM Ventures.

“It’s about building an ecosystem that really supports the creation of intellectual property, the commercialization, the financing,” Lauckner said. “There’s some very encouraging signs that Michigan is moving in the right direction.”

Contact Chrissie Thompson: 313-222-8784 or [email protected]


Posted August 31, 2011 in News